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Reforming public expenditure in industrialised countries: are there trade-offs?

Author

Listed:
  • Schuknecht, Ludger
  • Tanzi, Vito
Abstract
In this paper, we show that, contrary to common beliefs, over the past two decades several countries were able to reduce public spending by remarkable amounts. These countries did not seem to have suffered from these large reductions either in a macroeconomic sense, or in terms of lower values for socio-economic indicators. On the contrary, ambitious expenditure reform coincides with improvements in fiscal, economic, human development and institutional indicators. Positive developments associated with expenditure reform, in some instances, have taken a while to materialize and early and persistent reformers have, hence, already seen more of them. Unfavourable effects on income distribution within countries are small and they are mitigated in absolute terms by faster growth in the medium run and by the possibilities of better targeting of public spending. Moreover, there is significant divergence across countries that suggests that country circumstances and reform design matter. JEL Classification: H5, H6, O57

Suggested Citation

  • Schuknecht, Ludger & Tanzi, Vito, 2005. "Reforming public expenditure in industrialised countries: are there trade-offs?," Working Paper Series 435, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005435
    Note: 175489
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp435.pdf
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    References listed on IDEAS

    as
    1. Willem Adema, 2001. "Net Social Expenditure: 2nd Edition," OECD Labour Market and Social Policy Occasional Papers 52, OECD Publishing.
    2. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June.
    3. Schuknecht, Ludger & Ebert, Werner & Thöne, Michael & Afonso, António, 2005. "Quality of public finances and growth," Working Paper Series 438, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jorge Martínez-Vázquez & Violeta Vulovic & Blanca Moreno Dodson, 2012. "The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 95-130, March.
    2. Elias Sanidas, 2014. "The Greek Non-Paradigm of Economic and Business Development, and Comparisons with South Korea," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(3), pages 30-48, July-Sept.
    3. Sebastian Hauptmeier & Martin Heipertz & Ludger Schuknecht, 2007. "Expenditure Reform in Industrialised Countries: A Case-Study Approach," Fiscal Studies, Institute for Fiscal Studies, vol. 28(3), pages 293-342, September.
    4. Bernadeta Baran, 2015. "Welfare State Challenges And The Concept Of Basic Income," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 9(1), pages 275-289.
    5. Marco Buti & Werner Rüger & Alessandro Turrini, 2009. "Is Lisbon Far from Maastricht? Trade-offs and Complementarities between Fiscal Discipline and Structural Reforms," CESifo Economic Studies, CESifo Group, vol. 55(1), pages 165-196, March.
    6. Vito Tanzi, 2005. "Fiscal policy and fiscal rules in the European Union," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(03), pages 57-64, October.
    7. Vito Tanzi, 2005. "Fiscal Policy and Fiscal Rules in the European Union," CASE Network Studies and Analyses 0301, CASE-Center for Social and Economic Research.
    8. Vito Tanzi, 2005. "Social Protection in a Globalizing World," Rivista di Politica Economica, SIPI Spa, vol. 95(2), pages 25-46, March-Apr.
    9. Czeczeli, Vivien & Kolozsi, Pál Péter & Kutasi, Gábor & Marton, Ádám, 2020. "Economic Exposure and Crisis Resilience in Exogenous Shock — The Short-Term Economic Impact of the Covid-19 Pandemic in the EU," Public Finance Quarterly, Corvinus University of Budapest, vol. 65(3), pages 321-347.
    10. Sanz Labrador, Ismael & Sanz-Sanz, José Félix, 2013. "Política fiscal y crecimiento económico: consideraciones microeconómicas y relaciones macroeconómicas," Macroeconomía del Desarrollo 5367, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Aleš Melecký & Martin Melecký, 2012. "Vliv makroekonomických šoků na dynamiku vládního dluhu: jak robustní je fiskální pozice České republiky? [The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is the Fisca," Politická ekonomie, Prague University of Economics and Business, vol. 2012(6), pages 723-742.
    12. Antonio Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Public sector efficiency: evidence for new EU member states and emerging markets," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2147-2164.
    13. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2005. "The Stability pact Pains : A Forward-Looking Assessment of the Reform Debate," Discussion Paper 2005-101, Tilburg University, Center for Economic Research.
    14. Muenz, Rainer, 2007. "Aging and demographic change in European societies : main trends and alternative policy options," Social Protection Discussion Papers and Notes 39174, The World Bank.
    15. Gonzales, Ivonne & Martner Fanta, Ricardo & Podestá, Andrea, 2013. "Políticas fiscales para el crecimiento y la igualdad," Macroeconomía del Desarrollo 5372, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    16. Anatilde Salerno, 2017. "El Impacto Redistributivo del Gasto Social en Argentina (2003-2015): Una Herramienta para Evaluar las Politicas Publicas de Asignacion Social," Commitment to Equity (CEQ) Working Paper Series 79, Tulane University, Department of Economics.
    17. Brady, David & Lee, Hang Young, 2014. "The rise and fall of government spending in affluent democracies, 1971-2008," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 24(1), pages 56-79.
    18. Athanasios Tagkalakis, 2009. "Fiscal adjustments: do labor and product market institutions matter?," Public Choice, Springer, vol. 139(3), pages 389-411, June.
    19. Döhrn, Roland & Barabas, György & Gebhardt, Heinz & Middendorf, Torge & Milton, Antoine-Richard & Münch, Heinz Josef & Schäfer, Günter & Schmidt, Torsten & Taureg, Ullrich, 2005. "Die wirtschaftliche Entwicklung im Inland: Weiterhin kein kräftiger Aufschwung," RWI Konjunkturberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, vol. 56(1), pages 23-60.
    20. Miss Catriona Purfield, 2005. "Managing Revenue Volatility in a Small Island Economy: The Case of Kiribati," IMF Working Papers 2005/154, International Monetary Fund.
    21. Vito Tanzi, 2005. "Fiscal policy and fiscal rules in the European Union," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(3), pages 57-64, October.
    22. Mihályi, Péter, 2005. "Jó úton járunk? Magyarország euróstratégiája [Are we on the right track? Hungary s Euro strategy]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 712-731.

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    More about this item

    Keywords

    economic growth; expenditure reform; public expenditure; socio economic indicators;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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